Your price sensitivity is asymmetric … and we know it.

According to TheVerge.com

Big grocery chains are increasingly turning to big data and mathematical models to take the guessing out of the process of pricing thousands of items on their shelves,

 

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The models can detect your yogurt flavor preferences and your “internal hierarchy of brands” … i.e. which brands your think are better than others.

The models can identify the precise price point at which you would switch between brands or how much incentive you’d need to buy the bigger pack.

It’s not enough to simply know that a 12-pack should cost less per item than a six-pack, nor that branded yogurts should command a price premium … the models try to calculate exactly how much each of those prices should vary.

The models recognize that people are really price-sensitive when buying cold desserts and that a “buy one, get one free” offer is more cost efficient than a straight 50 percent price cut (that’s because some people will still take just one).

And, the models can also detect more nuanced dynamics such as “asymmetric cross-price elasticity” … e.g. an eight-pack’s price affects sales of four-packs more strongly than vice versa.

Think about it next time you swipe your store’s loyalty card.

#HomaFiles

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